Freelance journalist Diana Clement welcomes the outcome of the Commerce Commission's probe into Youi that lent heavily on her work, but isn't convinced the company has mended its ways

Freelance journalist Diana Clement, whose painstaking investigation into Youi resulted in the insurer being fined $320,000 in the Auckland District Court on Thursday, says it's good the company has now been convicted for this "scandal."

"They have pleaded guilty, they have been convicted and they have been fined," Clement told interest.co.nz in a Double Shot interview.

The court case follows a Commerce Commission prosecution, which sourced much of its material from Clement's work, published in two parts by Interest.co.nz earlier this year.

Clement is, however, not convinced that Youi has changed its ways.

"Every couple of days someone is complaining on social media about some of those issues that related to mis-selling," she says.

Immediately below is an article circulated by Clement after the court hearing. Following it is a statement issued by Youi after the court hearing. Youi has declined interest.co.nz's request for an interview.

The Commerce Commission filed 15 sample charges relating to misrepresentations made to consumers between July 2014 and February 2016.

South African based insurer Youi, which has operated in New Zealand since 2014, previously pleaded guilty to charges that it:

· made false or misleading representations on its website regarding consumers’ ability to obtain a quote online;

· made false or misleading statements during telephone sales calls with consumers, including telling them bank or credit card details were required to generate a policy quote;

· asserted a right to payment for unsolicited insurance policies by sending letters demanding payment and/or debiting consumers’ bank or credit card accounts without their express permission or knowledge. And;

· sent invoices to consumers in relation to unsolicited insurance policies that did not specify that the consumer was under no obligation to pay for the policies.

The Commerce Commission investigation was launched after my own year-long investigation.

I first uncovered breaches of the Fair Trading Act by Youi whilst writing an article for the New Zealand Herald. I made a “mystery shop” call to Youi looking for a quote on a motor vehicle. Despite revealing myself as a journalist three minutes into the call, the staff member claimed falsely that Youi’s computer system couldn’t produce a quote without payment details being entered. Youi went on to debit $592 from my credit card without permission.

I presumed at the time that it was a one-off mistake, and Youi management claimed that it was a single rogue employee. But as soon as my article was published victims started coming forward.

Then the first of around eight staff members made contact and told me a story of ambush selling so outrageous that it was almost unbelievable. Over the next few months, however I collected hundreds of complaints about this company. Rather than being a one-off rogue employee, who had mis-sold to just me, the extraordinary sales methods were used by Youi staff across the company's South African, Australian and New Zealand offices.

Staff told me again and again that the sales methods that they were pressured to use to ambush clients had been schooled into them by managers. My findings were published in a two-part exposé on Interest.co.nz, which can be read here and here.

As well as using pressure sales and ambush tactics to sell policies, the company did, and still does continue to sell policies that simply don’t cover the basics. The standard household contents policy, for example, doesn’t include away from home cover and staff members routinely didn’t tell customers this. The commission sales structure, which Youi calls “performance based salary” discouraged the sale of these “extras” that are simply part of the standard policies with all leading insurers in New Zealand. Staff members were dis-incentivised to make customers aware of these “extras” because they pushed the premium up to levels where customers wouldn’t buy and consequently the staff member wouldn’t get any commission.

Other ways that staff members routinely reduced premiums in order to clinch the sale and therefore their commission was to do what they called “maniping” (manipulating). Desperate to earn bonuses, staff would “manip” the information entered into the computer.

Staff members realised, for example, that certain models of car were expensive to insure. They would as a result say they couldn’t find that model on the computer and suggest they input another model in the meantime. This sleight of hand that customers often didn’t remember until it was pointed out to them meant the premium was cheaper. What customers failed to realise was that the change of vehicle meant they would not be covered by the policy should they have to claim.

Putting words in customers' mouths

In the calls I listened to sales advisers repeatedly said the words they wanted customers to agree to leading to answers that would reduce cover and the premium or in some cases completely invalidate the insurance. Sales staff often put words in customers’ mouths and then rushed on hoping the customer wouldn’t notice that they’d agreed to include data on their policy that wasn’t true – such as the age they began driving. Likewise Staff members would rush over excess information or say things like “two five hundred” emphasising the “five hundred” so that the customer thought their excess was $500, not $2,500. By putting the excess up they lowered the premium considerably, which led to a sale and the staff member getting a notch closer to his or her bonus target.

One victim of this maniping, Amanda Easterbrook found that the Australian-based staff member who sold to her had entered into the policy that her car was garaged at home, even though she had no garage. Had her car been stolen, Youi could have declined the claim and voided the policy from inception with no premium refund because Easterbrook would have been paying lower premiums based on an untruth. Fortunately Easterbrook was aware of the significance of the incorrect details entered by a staff member on her policy.

Staff members also confused the customer into saying things that weren’t true, but would reduce the premium. A common one was that their car was parked on the property or in the garage rather than on the road. This reduced the premium to a point where the customer might buy the policy, but it could void their cover if not true because insurance is based on a contract of “utmost good faith”. Insurers can decline claims on any aspect of the policy if utmost good faith has been breached, not just breaches related to that exact claim.

In one call I listened to I heard the sales adviser prompt the customer to agree with her on the statement: "When you use it to get to work I have got here it is parked outside on the property, yeah?" The customer who could be heard to be distracted by children in the background replied: "yeah", whereas she meant parked on the property at home, which they had just been talking about at length, not work. Sales advisers knew to move onto the next question quickly before the customer had time to think about what they had just said. Often customers were bamboozled into agreeing to all sorts of things that would invalidate their cover.

Astoundingly I heard Youi salespeople in calls I listened to attempting to get customers to reduce the sum insured on their homes – in one case by more than $400,000. A reduced sum insured made the premium appear cheap against their old insurer. There was more than one such ruse used in the calls I listened to. The idea that staff members at an insurance company were encouraging home owners to drop their cover by hundreds of thousands of dollars is just mind boggling.

Payment details taken from customers merely seeking a quote

One of the most shocking aspect of the mis-selling that I uncovered was that New Zealand, Australian and South African-based staff members selling to Kiwi customers routinely attempted to take and use payment details from clients who had quite clearly just requested a quote. Staff members referred to requests for quotes as the "Q word". The ones who spoke to me said their managers implored them to get payment details from customers looking for a quote and to start the policy whether or not the customer wanted it.

A number of ruses were used to get credit card and bank account details for direct debits. Some customers were told, as I was, that the system couldn’t produce a quote without these details being entered or that they could only "unlock" discounts into the system if payment details were entered but that no payments would be taken out. Sometimes they told the customer that they could set up a policy in readiness for the customer, but started it anyway. Or they said that they could cancel the policy if the customer didn’t want it. Many customers found, however, that no matter what they were told the policy was started and their accounts debited instantly.

When customers realised and tried to cancel the policy they went into what staff members call the “retention merry go round”. To “cancel” policies they’d never requested they had to deal with staff members who were paid commission on how many customers they retained. As a result many found it almost impossible to cancel and some, especially elderly customers, gave up. Kate Hodgins’ elderly father was charged $2,000 in two separate withdrawals a year apart but fell victim of the retentions merry-go-round and couldn’t cancel the policy or get a refund. Staff members told me that retentions staff would often hang up on people who wanted to cancel. What’s more, email cancellations were simply ignored as mine was. Youi’s management claimed in each case that I looked into that the emails were never received.

Youi has repeated many times since my first investigation that they are working with affected customers. I have recorded hundreds of complaints about the company. In my experience only those customers who kick up a huge stink on social media have had their cases dealt with. Others who don’t have the wherewithal to fight have lost their money.

Youi’s management has claimed repeatedly that the sales methods used in its New Zealand, Australian, and South African call centres were not condoned by management. But staff members say that the culture came from their direct managers who earned incentives from the number of policies sold and/or retained by front line call centre staff.

In my 30 years as a journalist, 20 of those writing about financial services, the Youi prosecution is the worst case of mis-selling to consumers I have ever encountered.

I have to say hand on heart that I have never come across a company whose sales methods were so inappropriate for the product that they are selling. Since I started my investigation in March 2015 I have listened to many, many sales calls and haven’t yet heard one that didn’t include at least one instance of mis-selling. In court it was heard that individual complainants had fallen victim to as many as seven different types of mis-selling in their sales calls. In those calls customers were groomed for sometimes more than an hour to hand over payment details when they had asked for a quote. All of the calls I’ve listened to employed multiple hard-sell tactics, which I believe are inappropriate in New Zealand. Kiwis expect to be treated fairly and as a result often did not comprehend how they were being manipulated during the commission sales and retention calls. Kiwis are “far too trusting” making them an easy target, for unconscionable sales methods.

The difficulty for staff, as customer complaints confirm was that by and large Youi’s prices were more expensive than competitors, which made the policies too difficult to sell by standard methods. Managers would sometimes stand over them telling them what to do to clinch the sale at all costs.

Yet mis-sold home, car or contents insurance can quite literally bankrupt people. If their home burns down, contents are destroyed or car stolen, written off or they damage third party property and their insurance doesn’t pay out, most Kiwis wouldn’t have the financial resources to cope.

Customers who have been mis-sold to or never received refunds for money taken from their accounts unlawfully should complain publicly on Youi’s Facebook page and Twitter feeds, no matter how many years have passed since the incident happened. They can also complain to the Insurance Ombudsman. However I have noticed that customers who complain publicly on social media get their refunds or claims paid out quickly before they make more fuss.

Customers should also demand to hear their sales calls. Hearing the verbal calls often uncovers some of the sleights of hand used that aren’t evident if Youi sends a transcript. I have come across many occasions where Youi has told customers that they will have to pay to hear their own sales calls. However given the widespread mis-selling and the guilty plea, I believe customers should push to be given the recorded calls. It’s ironic that staff members in the claims department have have the calls available at the touch of a button to listen to, but customers are told that it would cost a lot of money to retrieve them. Those calls are one of Youi’s many dirty little secrets that it doesn’t want getting out.

Tipping off the Aussies

Following my investigation, I tipped off and then assisted Melbourne Age reporter Liam Mannix in carrying out a similar investigation (here and here) into the same practices across the ditch. That very indepth and well-researched article led to an investigation by the Australian Securities and Investments Commission which is still ongoing. Whilst investigating the New Zealand mis-selling I came across many, many more Australian victims of the same practices. In fact I believe the scale of the problem was worse in Australia than New Zealand. The three call centres in Australia, New Zealand and South Africa sell across borders and used the same methods whether selling to their local markets or overseas.

The issues related to buying insurance from Youi didn’t just relate to the mis-selling. Customers are not made aware as well that the Youi house and contents policies are substandard. The house policy is probably the most shocking. Kiwis who phone up for a quote assume that they are comparing apples with apples. But the Youi policy covers specific perils such as fire and earthquake, not “all risks”. Other New Zealand insurance companies moved to the more comprehensive "all risks" cover in the 1980s after it was shown that specified perils cover did not adequately protect home owners from all of the risks to their home. The vast majority of consumers wouldn’t realise that they were buying a substandard policy.

Standard benefits missing

Youi talks about "tailor made" insurance. What this means in reality is that the standard benefits offered by other insurers such as accidental damage, and mobile phone and jewellery cover away from home aren’t included in the policy. Because staff members were driven by commission they were incentivised not to let consumers know that this basic cover wasn’t included.

Not a single call I have heard that involved the selling of a house (buildings) policy was the customer made aware that they weren’t covered for accidental damage and that the policy wasn’t an “all risks” cover, which is standard in New Zealand. In fact the advisers often used the shortcomings of the policies as a sales method.

One such case was police officer Josh Parsons who believed he was "a little bit more savvy than most" until he found that he had been taken for a ride by Youi and not offered accidental damage cover. Like most Kiwis he assumed this was in the policy as standard.

Parsons took out a contents insurance policy with Youi, but he says the sales adviser failed to point out that there was an accidental damage “extension” that he could have paid extra for.

His flatmate accidentally sat on his TV (which was temporarily on the sofa) on the day they moved in, breaking it. When he phoned Youi to make a claim he was told he didn’t have accidental damage cover and should have read his policy.

'Person to person manipulation'

What really annoyed Parsons was that he sales person had told him that Youi’s policy was better than the one he had with State Insurance, whereas the opposite was true.

In the same call Parsons found out that he had not been given cover for his mobile phone, although fortunately he hadn’t needed to claim. "This is 2016 please", he told the claims agent. "My phone is not covered?" The answer (from Youi) was: "some people don’t have mobile phones so we don’t cover them (automatically)". He added that he believed Youi had deliberately withheld information about accidental damage and mobile phone cover from him to sell the policy.

Parsons complained repeatedly to Youi, but got nowhere. One thing that surprised Parsons was that he kept being put onto "super friendly" staff members who said they would help, but went away and nothing happened. "This guy made me feel really good. He said: ‘oh my, this is really bad, we are going to get this sorted for you’." Parsons was then told again that he was not covered. "It felt like the good guy, bad guy situation'," he says.

A former staff member said that the "friendly technique" was taught to Youi staff during basic training. She described it as "person to person manipulation". "You get them to trust you that you are going to do them a favour and think I will give them a good deal."

One former staff member who sold to customers such as Parsons said she felt deeply uncomfortable that accidental damage; mobile phone; and jewellery were not covered and that she was encouraged not to inform customers of that. "My managers explained that in Australia no one needs that. I have lived in Australia myself so I knew that was pure bullocks," she says.

Another said: "We were told not to mention that possibility of that being available. If we added accidental damage it added to the price. I brought this up with my manager. I said: ‘75% of contents claims are accidental damage. Clients must be ringing up to make claims. The manager tried to push it to the side." His manager told the staff member that this wasn’t happening.

As well as failing to offer accidental damage on house and contents policies I have also heard calls, and heard from former employees that unless customers specifically asked for agreed value policies on their motor vehicles, they were not told about them or that they were automatically given market value policies.

At a sentencing hearing today, Youi accepted the Auckland District Court’s fine on Fair Trading Act charges for errors the company made in relation to its website and sales processes.

Youi publicly apologised and to address the issues that the Commission’s investigation raised, has already restructured systems, processes and employee incentives to improve customer service.

It has fully refunded all customers to whom policies were inappropriately issued from July 2014 (when Youi started its business in New Zealand) to date; the number of customers affected was less than 0.2% of policies issued for the same period.

CEO Danie Matthee said the sentencing hearing concludes the Commission’s investigation and Youi is looking forward to continuing to provide much needed competition in the New Zealand insurance market.

“While this behaviour was never condoned by the company, we have acknowledged that errors were made and that even one error of this nature was too many,” Mr Matthee said.

He added, “We cooperated fully with the Commerce Commission which acknowledged our “cooperation, remorse and remedial steps”. We are confident that our restructured systems and processes mean the issues won’t happen again.”

“Our focus now is to continue to grow our New Zealand business and provide awesome service to our 50,000 plus customers, thousands of whom have had their say and posted feedback on the Youi Wall (www.youi.co.nz/wall) which reflects an overall customer satisfaction rating of 91%.”

“We are also committed to the almost 400 Kiwis we employ locally, and the broader insurance market where Youi provides much needed product differentiation and price competition.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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When someone knowingly makes a mistrepresentation, and obtains a pecuniary advantage from that misrepresentation, then a criminal fraud has potentially been committed. Any person obtaining a commission, salary, or bonus would qualify as a pecuniary advantage. If there is a potential criminal offense the correct agency to deal with such a matter in the first instance is the Police, followed by the district court. Perhaps if the amount of money was large enough the high court could be appropriate.

So I am asking myself if it is sound behaviour by a journalist to take the profit from writing a story rather than hand the issue over to investigators with the means and experience to explore the case fully.

If I was a senior executive in Youi I would be laughing right now. I am sure the fine is chump changed compared to the business capacity that has now been developed through this policy. Only prison time would be a sufficient deterrent in my opinion.

Scarfie, your questioning of whether this is "sound behaviour by a journalist" is incredibly unfair. Diana worked on these articles for more than a year. Whilst she was paid for them by interest.co.nz, this is public service journalism and she is not getting rich off the back of it. Furthermore, the Commerce Commission may well not have prosecuted Youi without the detail Diana extracted. The information is now out there, thanks to Diana and interest.co.nz for publishing it, available to any authorities who may choose to use it.

In response to a private email, I do concede I am being rather harsh on Diana and interest.co. I have just seen too many cases in my time where criminal behaviour is swept under the carpet for convenience. Fear of grievances in employment court being one, and the offender gets away with theft and can move on somewhere else to offend against an unwitting employer.

I have also had something happen very close to home that involved sexual offending at school that should not have happened if the correct steps had been taken with previous offending.

I apologise to Diana for suggesting a financial incentive.

What I will outline is my belief that the Commerce Commision is technically wrong in this instance. I make these comments in the hope that people will take a harder look at any potential criminal behaviour and attempt to hold the perpetrator to account.

Misleading advertising is where you wilfully execute a purchase, but you make that purchase because of false claims.

Distinguish this from having your credit card or bank account debited against your will. That is a crime.

Youi are getting away with this because the process of obtaining the credit card details is consentual, but it is still artifice. This does muddy the area of consent for purchasing their service. A great con, but con artists are fraudsters and fraud is one of the most difficult of crimes to prove.

"asking myself if it is sound behaviour by a journalist to take the profit from writing a story rather than hand the issue over to investigators"

What a strange point. The thing is Diana got the job done!
I have been through a commerce commission complaint myself and if your contact has no specialized training, in my case electrical engineering, then your complaint will flounder.
Diana got it done!

Good on Diana for doing it. Good journalism sparks many prosecutions that might never otherwise happen. Scarfie's other point is a good one. The issue is whether ComCom should have run the case, or police. The description here sounds much more than the usual false and misleading under the Fair Trading Act, where companies and staff typically make genuine mistakes, don't know the law, cut corners, push the boundaries, etc, but don't actually set out to break any law.

We don't know if that's the case here of course. It may be 'just' misleading and rightly conducted by the appropriate agency. But generally speaking, if something is deliberate, if its institutionalised, and if it goes to the directing minds of the companies involved, it's way beyond the mandate of the Commerce Commission.

In addition to what I said above, we have drawn both the Reserve Bank's attention to Youi's behaviour (http://www.interest.co.nz/insurance/80722/commerce-commissions-youi-probe-final-stages-prudential-regulator-reserve-bank-notes) and the SFO's.

I wonder if the reason Crimes Act charges weren't pursued is that the impact of that could have been on low-level call-centre workers who were at the sharp end of carrying out the fraudulent policies, following a script, with no way to refuse without losing job and/or becoming whistleblower, rather than the management who imposed those policies on the workers and essentially forced them to apply them to customers.

I don't know what happened here of course, and it may well be 'just' misleading, and case closed. But, in a generic sense at least, lower level staff may not have the requisite criminal intent. Not so much the 'following orders' defence, but there may be gradations of intent. If systems are designed to mislead and, a step further (and more difficult to prove, a higher standard, and generally for large companies just plain unlikely), to defraud, then whoever designed it with that intent may be liable, and others not. If there was such evidence here though, the judge might have directed it to police, so perhaps it is 'just' misleading, and the fine was set at a level ComCom considered appropriate in the circumstances.

I'm just speculating, not having seen the file. Another snag the prosecution could potentially hit is physical location of those carrying out the fraudulent policies. Are the customer-dealing people even in New Zealand? If we have some shady executive formulating fraudulent schemes for profit, but not actually carrying out actionable offences, and a room-ful of ever-changing poor bastards on the phones in Manila or somewhere, who do you prosecute? Common-sensically we can see who's guilty, but it won't necessarily fit with the available laws.